Lies, Maths, And Health Insurance(tauntermedia.com)
tauntermedia.com
Lies, Maths, And Health Insurance
http://tauntermedia.com/2009/07/28/unconscionable-math/
31 comments
The essential problem is that the person paying the premium is not the insurance companies "customer". The health insurance company's customer is the shareholder, not the premium payer, that has to end.
I have built software for health insurance companies. I can tell you for certain they only look at the details of a policy for rescission purposes for those policies that are costing them far more than the premium has been paying. And if you watch the congress video embedded in the blog post http://www.youtube.com/watch?v=2H9ufue_1uI&eurl=http%3A%..., it makes perfectly clear that the application part of a policy is very easy to find "flaws" with retroactively if the insurance company choses.
I have built software for health insurance companies. I can tell you for certain they only look at the details of a policy for rescission purposes for those policies that are costing them far more than the premium has been paying. And if you watch the congress video embedded in the blog post http://www.youtube.com/watch?v=2H9ufue_1uI&eurl=http%3A%..., it makes perfectly clear that the application part of a policy is very easy to find "flaws" with retroactively if the insurance company choses.
That is so true. The insurance companies for health care should be non-profits with set salaries for all the employees.
The reason that people buy health insurance is for exactly the reason that the insurance companies drop the insured; They cost more money than they spend.
The reason that people buy health insurance is for exactly the reason that the insurance companies drop the insured; They cost more money than they spend.
The latter point isn't entirely true - at its core, buying insurance isn't necessarily about using more than you put in over time, but rather mitigating risks (hedging). That's not necessarily how everyone treats the current system, or for that matter how it's set up, but there's certainly a tension between the "insurance" model and the "health savings account" model (and the current system sort of tries to do both).
In terms of insurance companies being run as non-profits, let me ask two pointed (and I assure you, not-meant-to-be-trollish) questions:
1) If insurance companies should be non-profits with set salaries and so forth, why not just have the government do it at that point?
2) Two recently prominent examples of non-profits set up to further socially useful goals without actually being government agencies are Sallie Mae and Freddie Mac. Those didn't turn out so hot. How would you set up these non-profits to avoid the same sorts of problems?
Actually, I should throw in a third: does anyone know of any examples (successful or not) of a non-profit insurance entity or cooperative?
In terms of insurance companies being run as non-profits, let me ask two pointed (and I assure you, not-meant-to-be-trollish) questions:
1) If insurance companies should be non-profits with set salaries and so forth, why not just have the government do it at that point?
2) Two recently prominent examples of non-profits set up to further socially useful goals without actually being government agencies are Sallie Mae and Freddie Mac. Those didn't turn out so hot. How would you set up these non-profits to avoid the same sorts of problems?
Actually, I should throw in a third: does anyone know of any examples (successful or not) of a non-profit insurance entity or cooperative?
The discourse on this site is great. No need to apologize for questioning anything. Here are my answers to your questions:
1. There is a big difference between government intervention and government run organizations. Government run implies inefficiency and waste. There will always be people that game the system. I am well aware of that, but if all the government did was make it a non profit it would do a lot to mitigate against the mass profitering that is going on right now.
2. Sallie Mae no longer has any ties with the government and Freddie Mac is a government sponsored enterprise. In fact they were both set up as government sponsored enterprises when they first started. Enterprise implies an entity that is in it for the money.
As for your third question I do not know of any but it would be enlightening if someone knew of one.
1. There is a big difference between government intervention and government run organizations. Government run implies inefficiency and waste. There will always be people that game the system. I am well aware of that, but if all the government did was make it a non profit it would do a lot to mitigate against the mass profitering that is going on right now.
2. Sallie Mae no longer has any ties with the government and Freddie Mac is a government sponsored enterprise. In fact they were both set up as government sponsored enterprises when they first started. Enterprise implies an entity that is in it for the money.
As for your third question I do not know of any but it would be enlightening if someone knew of one.
Heh. Anecdote about govt. run organizations: My wife and I, upon being told that the US Post Office only offered a service between 10 and 4, commented that that was rather inconvenient for those of us with a 9 to 5 job.
The response? "We're not here for your convenience."
Wish I could have gone to someone who was...
The response? "We're not here for your convenience."
Wish I could have gone to someone who was...
Government run implies inefficiency and waste
Not always. In fact, existing government-run healthcare systems are much more efficient than the present US system.
Not always. In fact, existing government-run healthcare systems are much more efficient than the present US system.
If by "much more efficient", you mean "lethally long waiting times for treatment, limited choice and no means to estimate competency of treatment providers", then you are correct.
No, I mean much cheaper with better objective health outcomes. Or are you seriously suggesting that the current US system works better than (for example) the current UK system?
Perhaps a special fully transparent non-profit. You can pay employees whatever wage the market demands and with certain limits, like executive packages that have to be approved by "members" (policy holders).
As to your questions: 1 - The gov shouldn't do it because we want multiple of these entities, not just one. We need choice and competition, no single point of failure.
2 - It is common to say that extending home mortgages to higher risk groups, which Freddie played a role, was to further social goals. I simply do not buy it. Everything points to money. Extending these mortgages furthered the goals of the lenders and investment bankers and home builders as well. Look at who gave money to the politicians to make these policies happen. Hint: it was all of the above, except poor people. Yes, people who couldn't afford their homes benefited but they were not the lead players in making these policies happen.
As to your third question, companies that attempt to be more of a coop have to compete in the same market as the for-profit entities. I don't think you can solve this problem without leveling the playing field.
As to your questions: 1 - The gov shouldn't do it because we want multiple of these entities, not just one. We need choice and competition, no single point of failure.
2 - It is common to say that extending home mortgages to higher risk groups, which Freddie played a role, was to further social goals. I simply do not buy it. Everything points to money. Extending these mortgages furthered the goals of the lenders and investment bankers and home builders as well. Look at who gave money to the politicians to make these policies happen. Hint: it was all of the above, except poor people. Yes, people who couldn't afford their homes benefited but they were not the lead players in making these policies happen.
As to your third question, companies that attempt to be more of a coop have to compete in the same market as the for-profit entities. I don't think you can solve this problem without leveling the playing field.
There are a number of cooperative health insurance companies. Group Health in Seattle is one: http://www.ghc.org/about_gh/index.jhtml
> The insurance companies for health care should be non-profits with set salaries for all the employees.
IIRC, Kaiser is non-profit.
If you think that you can do better, why aren't you doing it? You'll do incredible good for everyone, you'll drive the evil companies out of biz, and I'm sure that we will cut you some slack and let you get rich by whatever standard you deem appropriate.
IIRC, Kaiser is non-profit.
If you think that you can do better, why aren't you doing it? You'll do incredible good for everyone, you'll drive the evil companies out of biz, and I'm sure that we will cut you some slack and let you get rich by whatever standard you deem appropriate.
"Kaiser Permanente" is technically three separate companies that share (some) infrastructure and (some) employees.
Kaiser Foundation Health Plan Inc. is non-profit. Kaiser Foundation Hospitals is non-profit. Permanente Medical Group (the doctors) is for-profit.
Kaiser Foundation Health Plan Inc. is non-profit. Kaiser Foundation Hospitals is non-profit. Permanente Medical Group (the doctors) is for-profit.
* There's no reason middlish class people need to have things like physicians' visits and normal prescription drugs filtered through an insurance company or the government, they're completely affordable and expectable on their own.*
There is a good reason for this: tax avoidance.
"Insurance" (against everything) is paid for with pre-tax dollars. Doctor visits are paid for with post-tax dollars (ignoring HSA's, etc).
If car insurance got the same tax benefits, then car insurance which pays for gas would probably be available.
There is a good reason for this: tax avoidance.
"Insurance" (against everything) is paid for with pre-tax dollars. Doctor visits are paid for with post-tax dollars (ignoring HSA's, etc).
If car insurance got the same tax benefits, then car insurance which pays for gas would probably be available.
That's true, though if you're on the hook for a person's catastrophic care, you may very well want to give them economic incentives (i.e. cheap/free doctor's checkups) to invest in preventative care.
Now, this doesn't mean that we ought to necessarily have a big, bad program (government or private) control everything.
But it does mean that the "insurance is for catastrophes, everything else should be out-of-pocket" model isn't necessarily as simple and wonderful as it sounds.
Now, this doesn't mean that we ought to necessarily have a big, bad program (government or private) control everything.
But it does mean that the "insurance is for catastrophes, everything else should be out-of-pocket" model isn't necessarily as simple and wonderful as it sounds.
It's actually quite common for High-Deductible plans to include payment for standard preventative care (e.g. annual physical). After all the costs covered are predictable and well-contained anyway (typically a few hundred a year).
Beyond that, the emerging "direct Primary Care" model (e.g. http://qliance.com/) is another way to remove the financial disincentive to use preventative care. With them you get unlimited around-the-clock primary care for $50+/month, so there's no additional cost to come in for a checkup. And the barriers to interacting with them are even lower than an insurance-bound doctor, as they embrace modern forms of communication so you can e-mail them about problems which otherwise would not have risen to the level of motivating an appointment.
Note that in this case, subscribers would then favor insurance which does not cover preventative care, or else they'd be paying for it twice, so it's not necessarily beneficial that all people get this support from their insurance.
Beyond that, the emerging "direct Primary Care" model (e.g. http://qliance.com/) is another way to remove the financial disincentive to use preventative care. With them you get unlimited around-the-clock primary care for $50+/month, so there's no additional cost to come in for a checkup. And the barriers to interacting with them are even lower than an insurance-bound doctor, as they embrace modern forms of communication so you can e-mail them about problems which otherwise would not have risen to the level of motivating an appointment.
Note that in this case, subscribers would then favor insurance which does not cover preventative care, or else they'd be paying for it twice, so it's not necessarily beneficial that all people get this support from their insurance.
That's true if the assumptions behind it are true -- that cheap/free doctor's checkups result in lower catastrophic care costs. I'm not aware of any study that shows that they are.
I don't have the studies in front of me, but it generally depends. In the case of diabetes, for instance, a lifetime of diet monitoring and counseling by a doctor or nurse is still way cheaper than insulin or amputation.
The diabetes example is not one I had thought of, I'll look into it.
What bothers me is that I see a lot of knee-jerk "we'll just make it up on preventative care" in the debate, without any way of proving how the costs add up.
Without having looked into it deeper, my question about diabetes would be whether free/cheap checkups and counseling affect the number of people who correctly handle their problem.
What bothers me is that I see a lot of knee-jerk "we'll just make it up on preventative care" in the debate, without any way of proving how the costs add up.
Without having looked into it deeper, my question about diabetes would be whether free/cheap checkups and counseling affect the number of people who correctly handle their problem.
There's a pretty clear medical consensus (based on tons of data) that diet and exercise affects the development or progression of diabetes (well, type II). There's also a wide consensus that professional counseling and monitoring helps (though I believe it's harder to get really "clean" studies to support this, since you'd need a control group of people who you monitor closely enough to get good comparison data without actually talking to them about what's going on).
The follow-up question, of course, is whether (or how much) the cost of checkups/counseling affects whether/how much people seek it out, or whether that behavior is more idiosyncratic (i.e. "some people just don't care about their health, so even if checkups were free they wouldn't bother").
To be fair, I haven't seen any study that conclusively proves the issue (which of course doesn't imply that one isn't out there). However, if we're really going to make the claim that economic incentives don't matter, then we really need to question a lot of other assumptions as well. I'm pretty comfortable saying that at least on some level, to some degree, economic incentives have some impact on people's behavior in seeking care.
In terms of "we'll just make it up on preventative care", I agree, that's not a panacea. At the same time, a lot of the money that's slated to be spent on covering the uninsured is still spent today, just in really stupidly inefficient ways.
For instance, because you generally can't be denied emergency room care, people without insurance often end up using ERs as primary care. Because ERs are primarily meant to handle, well, emergencies, the standard of care is generally more expensive than a clinic or "regular doctor" (this means things like faster and more expensive tests, drugs, and so forth). Many of those people simply can't pay, but the hospital treated them anyway (which, just to be clear, is a GOOD thing - it would be a pretty horrid society where we let people bleed to death or what have you). Many hospitals would have a hard time staying open if this went on indefinitely, so the government reimburses them for this uninsured care.
So, at the end of the day "we the taxpayers" still pay for a good deal of uninsured care... we just do it via an indirect subsidy to hospitals for expensive ER care, rather than paying directly for (much cheaper) clinic care, or something along those lines. As with most things, the less directly we're tackling the problem, the more inefficiency there is in the system.
It would be foolish to claim that all the costs of a big health care/health insurance overhaul would be paid for by money already in the system - clearly, that depends a great deal on the details. But at the same time, it's important to remember that some of the money can come from within the system: at a minimum, if we reduce the number of uninsured people, we can reduce payments to hospitals for uninsured care.
It's not a zero-sum game - electronic medical records and that sort of stuff aside, there's a lot of honest-to-goodness inefficiency and perverse incentives in the system, and that's what (a good) reform ought to tackle.
Edit: just to be clear, reimbursements for uninsured care take many forms, and there's another, more obvious one: higher prices for everybody else. The salient point is that much of this care is being provided anyway, so why not do it more efficiently?
The follow-up question, of course, is whether (or how much) the cost of checkups/counseling affects whether/how much people seek it out, or whether that behavior is more idiosyncratic (i.e. "some people just don't care about their health, so even if checkups were free they wouldn't bother").
To be fair, I haven't seen any study that conclusively proves the issue (which of course doesn't imply that one isn't out there). However, if we're really going to make the claim that economic incentives don't matter, then we really need to question a lot of other assumptions as well. I'm pretty comfortable saying that at least on some level, to some degree, economic incentives have some impact on people's behavior in seeking care.
In terms of "we'll just make it up on preventative care", I agree, that's not a panacea. At the same time, a lot of the money that's slated to be spent on covering the uninsured is still spent today, just in really stupidly inefficient ways.
For instance, because you generally can't be denied emergency room care, people without insurance often end up using ERs as primary care. Because ERs are primarily meant to handle, well, emergencies, the standard of care is generally more expensive than a clinic or "regular doctor" (this means things like faster and more expensive tests, drugs, and so forth). Many of those people simply can't pay, but the hospital treated them anyway (which, just to be clear, is a GOOD thing - it would be a pretty horrid society where we let people bleed to death or what have you). Many hospitals would have a hard time staying open if this went on indefinitely, so the government reimburses them for this uninsured care.
So, at the end of the day "we the taxpayers" still pay for a good deal of uninsured care... we just do it via an indirect subsidy to hospitals for expensive ER care, rather than paying directly for (much cheaper) clinic care, or something along those lines. As with most things, the less directly we're tackling the problem, the more inefficiency there is in the system.
It would be foolish to claim that all the costs of a big health care/health insurance overhaul would be paid for by money already in the system - clearly, that depends a great deal on the details. But at the same time, it's important to remember that some of the money can come from within the system: at a minimum, if we reduce the number of uninsured people, we can reduce payments to hospitals for uninsured care.
It's not a zero-sum game - electronic medical records and that sort of stuff aside, there's a lot of honest-to-goodness inefficiency and perverse incentives in the system, and that's what (a good) reform ought to tackle.
Edit: just to be clear, reimbursements for uninsured care take many forms, and there's another, more obvious one: higher prices for everybody else. The salient point is that much of this care is being provided anyway, so why not do it more efficiently?
It constantly amazes me as to how even the simplest and most shallow of figures ("It affects less than one-half of one percent of people we cover.") can lie in a spectacular way. I tend to think of myself as a fairly well-educated person, but I wouldn't have looked twice at this statement unless I was given good reason to.
How many people are being manipulated by 'simple' and seemingly pure figures every day?
How many people are being manipulated by 'simple' and seemingly pure figures every day?
Then the article "lies" in the same way: "If the top 5% is the absolute largest population for whom rescission would make sense, the probability of having your policy cancelled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population)." Let's assume his numbers are correct. Is 10% high or low? Who knows. What is the probability of the applicant having lied, given that they have filed that type of claim, and what is the probability for the rest of their customers?
The whole "evil insurance companies" thing is ridiculous. Companies are amoral and profit seeking. Insurance companies just take groups (as regulated by government), provide them level of coverage (as regulated by government), figure out the actuarial risks (based on factors regulated by government), spread those risks around members of the group (with a low-risk members subsidizing the high risk at the level regulated by government) and sell insurance product designed to maximize their profit within a competitive marketplace. A similar product to what he is suggesting, that covers pre-existing conditions already exists in CA as a shall-issue product, it's called a small group coverage. It's also many times more expensive than individual insurance.
Should an individual insurance product with transparent pre-existing condition coverage exist? Absolutely. It's going to be more expensive than today's individual coverage, and that's why an insurance company could not successfully sell it against existing competing products in the current individual marketplace, even if regulators allowed it to. It's up to the government to set up or to allow insurance companies to setup such a group/coverage/underwriting-criteria combination. It's also up to the government to get rid of perverse tax incentives that subsidize group policies and drive people away from individual policies. Of course, grilling insurance company executives on TV is so much more fun than actually doing work.
The whole "evil insurance companies" thing is ridiculous. Companies are amoral and profit seeking. Insurance companies just take groups (as regulated by government), provide them level of coverage (as regulated by government), figure out the actuarial risks (based on factors regulated by government), spread those risks around members of the group (with a low-risk members subsidizing the high risk at the level regulated by government) and sell insurance product designed to maximize their profit within a competitive marketplace. A similar product to what he is suggesting, that covers pre-existing conditions already exists in CA as a shall-issue product, it's called a small group coverage. It's also many times more expensive than individual insurance.
Should an individual insurance product with transparent pre-existing condition coverage exist? Absolutely. It's going to be more expensive than today's individual coverage, and that's why an insurance company could not successfully sell it against existing competing products in the current individual marketplace, even if regulators allowed it to. It's up to the government to set up or to allow insurance companies to setup such a group/coverage/underwriting-criteria combination. It's also up to the government to get rid of perverse tax incentives that subsidize group policies and drive people away from individual policies. Of course, grilling insurance company executives on TV is so much more fun than actually doing work.
His numbers aren't even attempting to be correct, he's pointing out that in fact 0.5% isn't necessarily low. What it shows is there is quite an obvious strategy for insurance companies to pursue which would have a level of 0.5% rescission but completely destroy the expectation that you be covered in the event that you really needed your health insurance.
The whole "evil insurance companies" thing is ridiculous. Companies are amoral and profit seeking.
Wrong. Industries have distinct cultures, usually formed through self-selection due to the sort of people who choose careers in them. Compare police officers and firemen, for example. Similar sorts of work, but wildly different cultures due to self-selection effects.
Now, what sort of culture do insurance companies have? I think that there's good evidence that it's a sick and cancerous one.
Otherwise, good point about the necessity of government intervention in this market.
Wrong. Industries have distinct cultures, usually formed through self-selection due to the sort of people who choose careers in them. Compare police officers and firemen, for example. Similar sorts of work, but wildly different cultures due to self-selection effects.
Now, what sort of culture do insurance companies have? I think that there's good evidence that it's a sick and cancerous one.
Otherwise, good point about the necessity of government intervention in this market.
Now, what sort of culture do insurance companies have? I think that there's good evidence that it's a sick and cancerous one.
If you have evidence to support this claim, provide it. It might be interesting.
If you don't, you're just resorting to name-calling so you can win a boring argument about politics. We don't like that sort of thing here.
http://ycombinator.com/newsguidelines.html
If you have evidence to support this claim, provide it. It might be interesting.
If you don't, you're just resorting to name-calling so you can win a boring argument about politics. We don't like that sort of thing here.
http://ycombinator.com/newsguidelines.html
"If you have evidence to support this claim, provide it. It might be interesting. If you don't, you're just resorting to name-calling so you can win a boring argument about politics. We don't like that sort of thing here."
I think the opinion of the parent falls under the heading of "arguments that do not require citation, because any educated citizen should be familiar with their content". Here's what I found in two seconds of Googling:
http://articles.latimes.com/2006/sep/17/business/fi-revoke17
http://select.nytimes.com/2006/09/22/opinion/22krugman.html?...
http://www.sickofbluecross.com/consumer_stories/
and here's a great podcst from last weekend on insurance companies and their rescission practices that I just happened to hear while making dinner (third story in; right around the 30 minute mark):
http://thislife.org/Radio_Episode.aspx?episode=386
...and that's just a taste of the information that's out there, available to anyone with even a passing inclination to look for it. Maybe the decisions documented in these articles don't constitute "evil", but I wouldn't characterize the them as "amoral", either. At the least, there's a strong argument to be made that the profit-seeking motive of American health insurance companies has gotten out of balance with its duty to protect the insured, and requires further regulation.
I think the opinion of the parent falls under the heading of "arguments that do not require citation, because any educated citizen should be familiar with their content". Here's what I found in two seconds of Googling:
http://articles.latimes.com/2006/sep/17/business/fi-revoke17
http://select.nytimes.com/2006/09/22/opinion/22krugman.html?...
http://www.sickofbluecross.com/consumer_stories/
and here's a great podcst from last weekend on insurance companies and their rescission practices that I just happened to hear while making dinner (third story in; right around the 30 minute mark):
http://thislife.org/Radio_Episode.aspx?episode=386
...and that's just a taste of the information that's out there, available to anyone with even a passing inclination to look for it. Maybe the decisions documented in these articles don't constitute "evil", but I wouldn't characterize the them as "amoral", either. At the least, there's a strong argument to be made that the profit-seeking motive of American health insurance companies has gotten out of balance with its duty to protect the insured, and requires further regulation.
> If you don't, you're just resorting to name-calling so you can win a boring argument about politics. We don't like that sort of thing here.
Which is why "we" flag all of these articles:-)
Which is why "we" flag all of these articles:-)
Hospital Sues Health Insurance Company For Cheating Patients Out of Emergency Care
http://www.litigationandtrial.com/2009/07/articles/litigatio...
innumeracy is a far worse problem than you think. Here's an example that explains why most doctors are loathe to quote numbers to patients
http://yudkowsky.net/rational/bayes
http://yudkowsky.net/rational/bayes
The real question here is, of those .5% who had their policy cancelled, how many of them actually lied about a preexisting condition that they then filed a claim for? Because if there's even ONE person who had their policy cancelled unjustly, then that is one person too many.
The article assumes that any cancellations must be unjust, and then uses math to show that there are more cancellations than one might suspect. But if the cancellations aren't unjust in the first place, then the article is all smoke and no fire.
News flash - If you include fraudulent information on your insurance application, your insurance company may cancel your coverage when you need it most. Of course, if you filled out your application in good faith and they try to cancel it for frivolous reasons, you can sue them in court.
What exactly is the problem here?
Most of the urgency in his article comes from comparing fraudulent insurance applications to game show contestants and underage gamblers. Using these kinds of analogies obscures the more fundamental fact that insurance companies can only legally cancel your policy when you have supplied demonstrably fraudulent information.
That hardly seems like a scandal, or anything that warrants additional government regulation in what is already an incredibly heavily regulated industry.
News flash - If you include fraudulent information on your insurance application, your insurance company may cancel your coverage when you need it most. Of course, if you filled out your application in good faith and they try to cancel it for frivolous reasons, you can sue them in court.
What exactly is the problem here?
Most of the urgency in his article comes from comparing fraudulent insurance applications to game show contestants and underage gamblers. Using these kinds of analogies obscures the more fundamental fact that insurance companies can only legally cancel your policy when you have supplied demonstrably fraudulent information.
That hardly seems like a scandal, or anything that warrants additional government regulation in what is already an incredibly heavily regulated industry.
"If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%..."
"But let’s not forget that the very nature of the forms is designed to create inaccuracies"
Not to mention:
"I tend to think of traditional banking and traditional insurance as mirror images: when you take out a mortgage, you get a lump sum and make a series of payments; when you get life insurance, you make a series of payments and get a lump sum."
Which pretty much sums up the problem with the current health care debate -- almost nobody involved knows the difference between insurance and care. There's no reason middlish class people need to have things like physicians' visits and normal prescription drugs filtered through an insurance company or the government, they're completely affordable and expectable on their own. You insure unexpected, unaffordable events, like crashing your car, not oil changes.